FIRST PUBLISHED OCT 31, 2022
Updated Jan 19, 2023
It is tempting to look at the usual economic indicators when evaluating a government’s performance at the end of a Prime Minister’s run ... employment, growth, inflation, and maybe the exchange rate.
In the case of Jacinda Ardern’s government after five years, however, this would not be the right approach. As a result of Covid and amid a global economic crisis, the usual indicators are all over the place – not only in New Zealand.
The use of some indicators alone may be misleading as well. Is a low unemployment rate an outstanding achievement? Could it be a sign of an overstimulated economy? Could it result from a net outflow of working-age people?
It would be more appropriate to look at the wider picture of Ardern’s policy choices rather than the usual indicators.
Before becoming leader of the New Zealand Labour Party, just weeks before the 2017 election, the public heard little from Ardern on economic policy. As an MP since 2008, she had left no mark in this area in her time in parliament. Aside from her small business portfolio, which she held for some time, she took an active role in social causes.
As Prime Minister, however, Ardern changed New Zealand’s economic policy framework. Her goal was to undo the decisions of the fourth Labour government, which implemented significant reforms after the 1984 crisis under Minister of Finance Roger Douglas.
When “Rogernomics” started, Ardern was only four years old. Yet she said that the social impact of those reforms made her wary of market-based solutions. You could read Ardern’s whole economic agenda as an antidote to the 1984 program, which largely continued under prime ministers like Jim Bolger, Helen Clark, and John Key.
Despite their differences, governments since the late 1980s have followed roughly similar policies: limited government, an independent Reserve Bank focusing on price stability, balanced budgets through the economic cycle, liberal labour markets, and a limited social safety net.
Under Ardern, the basic pillars of New Zealand’s post-1984 settlement have been demolished.
In contrast to her predecessors, Ardern was much more comfortable with increasing state spending, including the structural part of it, even when it worsened long-term projections of New Zealand’s public debt. For many years, Treasury has warned that current spending trends will not be sustainable beyond a couple of decades, but Ardern has proceeded in this direction.
On monetary policy, Ardern revised decades-old inflation-targeting tradition. Instead, the Reserve Bank received new targets for employment and even house prices. Her Government also indemnified the RBNZ against losses related to its quantitative easing activities, which are approaching $10 billion.
New Zealand’s labour market was previously highly flexible, but Ardern introduced so-called Fair Pay Agreements. These “agreements” are compulsory industry-wide awards, despite their positive-sounding names. They will strengthen the unions and are likely to reduce employment.
The sixth Labour government will also introduce Social Unemployment Insurance at the same time that it re-regulates the labour market. This European-style social security system will supplement the welfare state. The program will be funded by new labour taxes making staying out of the labour market more attractive for those losing their jobs.
Openness to international talent was another longstanding policy setting in New Zealand. It had long viewed itself as a destination for migrants, and accepting them benefited the country.
Ardern changed that setting by first closing the borders a little to migrants – and then entirely during Covid. A combination of bureaucratic incompetence and a barely concealed anti-foreigner bias has slowed inward migration even after the pandemic.
Ardern’s government introduced an avalanche of centralisation to this list of policy choices. In various areas, including health care, polytechnics, and water infrastructure, policy decisions are being transferred to higher levels of government. As a result, bureaucracies that make these decisions have become cumbersome and distant from the people they’re supposed to serve.
As a result, Ardern’s economic approach placed a much greater emphasis on the role of the state. It is one in which traditional measures of good government, prudent policy, and stability are barely relevant.
Even if some economic indicators appear okay now, Ardern’s long-term policy choices have been disastrous.
They have put New Zealand on a path of becoming like Europe, combining a low-growth economy and a sclerotic state.
It is the opposite of what the 1984 reformers had envisaged.